Expenditure cut steps likely in FY25 budget

ISLAMABAD: The federal government is likely to announce measures in budget 2024-25 aimed at reducing expenditure massively including contributory pension scheme sans defence, civil armed forces and police, stoppage of funding to provincial development projects and sharing of BISP by provinces, well-informed sources in Cabinet Division told Business Recorder.

Last month Prime Minister Shehbaz Sharif constituted a seven-member committee to present a practical plan for reduction in government expenditure.

According to the notification issued by the Cabinet Division on March 11, 2024, composition of the Committee was as follows: (i) Deputy Chairman, Planning Commission (Chairman); (ii) Secretary, Cabinet Division (member); (iii) Secretary, Finance Division (member); (iv) Rashid Mahmood Langrial, Additional Secretary Incharge, I&P; (v) Kaiser Bengali (member); (vi) Farrukh Saleem (member); and (vii) Muhammad Naveed Iftikhar (member).

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The Terms of Reference (ToRs) of the Committee were: (i) take stock of all reports commissioned so far, including report of the National Austerity Committee notified by Finance Division, for institutional reforms etc. aimed at downsizing of the Federal Government; (ii) capture all the progress made so far in downsizing/rightsizing of Federal Government; (iii) prepare strategy and implementation plan for all remaining recommendations with timelines; and (iv) any other proposal (relating to PSDP, pension scheme, etc.) that can be helpful in reducing government expenditure.

The Committee argued that with implementation on proposed measures, government’s expenditure can be curtailed by up to Rs 300 billion per annum.

The sources said a study to assess size of the federal government and preparation of a set of proposals for consideration of the main Committee has been conducted by Dr. Kaiser Bengali.

Dr. Farrukh Saleem was requested to examine the proposals prepared by Finance Division to reduce expenditures of Pakistani Missions abroad and share the analysis with the main committee.

The sources said the committee recommended that all recruitments in Federal Government, barring Defence, Civil armed forces and police service, commencing July 2024, shall be on contributory pension scheme.

It has also proposed a complete ban on creation of new universities under HEC, as this places extra burden on the federal government. For all public sector provincial universities, the finances shall be met from the respective provinces and not HEC.

Provincial governments to share financial responsibility in costs of social protection program, ie, BISP for respective provinces. The sharing to be defined and contributions to be made in a staggered manner starting from 25%. However, special concessions shall be considered for under development regions like Balochistan and the merged Districts, the sources said, adding that Planning Commission is tasked to carry out due diligence in sponsoring PSDP funded projects. The Committee proposed to close all SDGs/provincial nature projects from next financial year. Only national level projects to be considered/funded.

The Federal subsidies being provided on provincial subject require to be withdrawn.

A comprehensive proposal with timelines on pension reforms to be prepared by the Finance Division - Pension Fund, Pension Law for identification of beneficiaries, pension contribution for new entrants from July 1, 2024.

A framework criterion to be developed to review the SOEs as per their respective functions and categorized on the basis of public good, regulatory functions etc. Necessary action will be taken by the Finance Division.

On the issue of reorganization of the federal government, the Secretary Establishment presented an overview of the reform initiatives taken in the past, for a realistic determination of the size of the overall secretariat, number of ministries and divisions. He also pointed out the imbalance in officer to staff ratio which is 1:10. Phase-wise abolition of posts from BS 1-16, vacant over a considerable period of time, was also proposed to reduce the burden on wage bill.

Dr. Kaiser further proposed to look into posts from BS 17-22 for abolition on the same lines. The proposal for abolishing of posts from BS1-16 was discussed. It was emphasized to have benchmarks as time period, if vacant for a considerable period of time, category of post, whether providing essential services as in health, education or power sector etc.

The Chair apprised that the financial impact of posts (from 17-22) was less when compared to posts of (BS 1-16). Secretary Establishment Division added that in many cases officers (BS 17-22) only constitute 5% of the organizations. The five tiers hierarchy in secretariat was also discussed.

Secretary I&P emphasized the need to focus on areas which potentially offer more meaningful reduction of expenditures, like PSDP projects, pension reforms, Federal liabilities for providing subsidies and grants etc. The Chair stated that reduction of expenditure initiatives must be ensured and be carried out in a sensible, responsive and structured manner.

Dr. Naveed Iftikhar, while endorsing these views, added that the traditional austerity measures of introducing budget cut of 15% etc. lowers the performance and creates asset maintenance issues.

In PSDP projects, there was a need for an analysis, assessing the impact of value of money. He opined that instead of motorways, there was a need to invest on rail infrastructure being economically more efficient and best adopted to our conditions. E-Office and CDA reforms were also discussed.

Additional Secretary Finance gave a detailed presentation of the report of National Austerity Committee and apprised the participants on the reforms that are in progress. Highlighting pension reforms, he stated that the present pension scheme was not sustainable.

The participants endorsed the views of the Finance Division and proposed to ascertain proposals from the Ministry of Defense and Finance related to pensions. On reducing the expenditure of Pakistani missions abroad, it was noted that work had already been carried out at the conceptual level which needed to be further substantiated. Budget contribution by federal government was also discussed.

The Chair agreed with this proposal and added that funding of BISP by federal government by borrowing loans from foreign donors was neither economically sustainable nor constitutionally correct. It is a provincial subject. federal government, however should share the expenditure with provinces.

The committee, sources said, has decided that positions in BS 1-16, vacant since one year, should be abolished.

All recruitments in Federal Government, barring Defence, Civil armed forces and police service, commencing July 2024, shall be on contributory pension scheme.

A complete ban to be imposed on creation of new universities under HEC as it places an extra burden on the federal government. For all public sector provincial universities, the finances shall be met from the respective provinces and not HEC.

Copyright Business Recorder, 2024